February 15, 2011

It’s Budget Week Part 1: Minerals Get a Boost

Of all the things receiving a newly important role in the
administration’s 2012 Budget, I honestly didn’t expect to see minerals make the
list. Over the past few years we’ve been monitoring issues with rare earths
trade issues, concerns over exploration in the Arctic, South China Sea
territorial disputes heating up as countries begin to think more seriously
about tapping the seabed resources there, and more. We even have a report
coming out on minerals a few months from now.

And now, here we find minerals receiving much more attention
than usual! Happy Valentine’s Day to the natural security team, eh?

To begin on the program development side, it appears that
the administration wants to solidify its commitment to understanding how mineral
supply chains will play into the development of America’s renewable energy
sector. The Office
of Science and Technology Policy
decided to help us out with cheat sheets
on science and technology issues in the budget. In its “Winning the Future through Innovation” (pdf) brief, OSTP points out (and the
underlining here is all mine) that this budget aims to:

Bring the Best Minds Together
to Advance Critical Energy Research.
Innovation and breakthroughs often
happen when scientists and thinkers from different disciplines collaborate on
some of our toughest problems. That is why we are challenging America’s
scientists and engineers to assemble teams of the best minds in their fields to
focus on the hardest problems in clean energy. The best proposals will be
funded as new Energy Innovation Hubs. Currently, we have three Hubs in place,
which specialize in fuels from sunlight, energy efficient buildings, and
modeling and simulation technologies for nuclear power. The Budget doubles the
number of Energy Innovation Hubs, creating three more hubs across the country. These
new Hubs will bring together top scientists to work in teams on
cross-disciplinary research related to: critical materials, including rare
earth elements; batteries and energy storage; and the development of new
grid materials and systems to help SmartGrid technology and improve energy
transmission efficiency.

These additional hubs are great – a fabulous tool for the
government investing in innovation without strong-arming the private sector or
going overboard in ways that harm the market’s tendencies for innovation on
their own. Kudos to the administration for realizing that technology requires
minerals and raw materials, and that innovation can come from all steps in
supply chains. Several Reps and Senators from both parties have been doing
great work digging into mineral issues as well, so I expect this measure may
turn out to be popular on the Hill.

So far, I haven’t seen anything in DOD’s budget about
minerals despite its recent work looking specifically into minerals in defense
supply chains – a few nods to industrial base issues, but nothing specific at
least in its short-ish budget
request overview

Minerals, as it turns out, also appear in the
revenue-generation side of the budget. Specifically, the primary
budget document
(another pdf) from the White House highlights administration
plans to raise revenues through mineral resource development – to the tune of
$3 billion in the next decade:

Provide a Better Return to
Taxpayers from Mineral Development.
The public re­ceived about $9 billion
in 2010 from fees, royal­ties, and other payments related to oil, gas, coal,
and other mineral development on Federal lands and waters. A number of recent
studies by the Government Accountability Office and the De­partment of the
Interior’s Inspector General have found that taxpayers could earn a better
re­turn through more rigorous oversight and policy changes, such as charging
appropriate fees and reforming how royalties are set. The Budget proposes a
number of actions to receive a fair return from the continued development of
these vital U.S. mineral resources: charging a roy­alty on select hardrock
minerals (such as silver, gold, and copper); terminating payments to
coal-producing States and Tribes that no longer need funds to clean up
abandoned coal mines; extend­ing net receipt sharing, where States with min­eral
revenue payments help defray the costs of managing the mineral leases that
generate the revenue; charging user fees to oil companies for processing oil
and gas drilling permits and in­specting operations on Federal lands and
waters, which complement new and rigorous safety and environmental standards to
make sure that these activities are done responsibly; establishing fees for new
non-producing oil and gas leases (both onshore and offshore) to encourage more
timely production; and making administrative changes to Federal oil and gas
royalties, such as adjusting royalty rates and terminating the royalty-in-kind
program. Together, these changes are expected to generate approximately $3
billion in savings to the Treasury over 10 years.

While these proposals are small in scale compared to the
entitlement budgets, broad defense budget, and most other subjects, they show
that the administration is taking natural security seriously – and proving that
addressing resource issues is a relatively simple and inexpensive way for the
government to safeguard American interests.

Please note that I haven’t yet done an exhaustive search of
the budget yet. As I’m mostly at a conference early this week, our commentary
will be an iterative process. We’ll have more for you on this tomorrow. In the
meantime, be sure to check out our wicked smart colleague Travis Sharp’s
analysis of the budget: “The Sacrifice Ahead: The 2012 Defense
” You won’t regret